Q1 2026 Fund Commentary

Commentary and opinions are provided by Mackenzie Investments.

Market commentary

Canada’s economy navigated a challenging first quarter as trade uncertainty continued to weigh on business confidence and manufacturing activity. Employment fell in January and February before stabilizing in March, when the economy added 14,000 jobs and the unemployment rate held steady at 6.7%.

The Bank of Canada held its policy rate at 2.25% at both its January and March meetings. Canada’s inflation rate eased to 1.8% in February, the softest reading in several months. The Bank noted that near-term growth was likely to be weaker than anticipated and that the energy price shock following the outbreak of the conflict in the Middle East posed upside risks to inflation in the near term.

The Canadian fixed income market delivered mixed results in the first quarter as geopolitical uncertainty and rising oil prices complicated the investment landscape. The yield on the 10-year Government of Canada bond rose from 3.43% at the start of the quarter to 3.47% by quarter-end, reaching a high of 3.58%, putting downward pressure on government bond prices, particularly late in the quarter. Corporate bonds showed resiliency, but underperformed government bonds with credit spreads widening slightly. High-yield bonds were relatively volatile as the late-quarter decline in risk appetite weighed on lower-rated issuers, though energy-linked names broadly outperformed.

Performance

The Fund’s Canadian government bond exposure contributed to performance during the quarter. An overweight in Canadian rates also contributed to performance as Canada’s economic narrative diverged from the U.S. Economic fragilities became more evident, prompting markets to reassess the Bank of Canada’s policy outlook following weaker growth and a cooling labour market. While Canadian yields moved higher, the Fund’s positioning benefited from relative value opportunities and curve positioning during the period.

The Fund’s U.S. government bond positioning detracted from performance. An overweight in U.S. rates detracted from performance as the U.S. Treasury yield curve proved volatile, with yields declining early in the period before rising later. The move higher in yields weighed on duration-heavy positioning.

Portfolio activity

The sub-advisor added Curaleaf Holdings, Inc. (11.50%, 2029/02/18) during the quarter. Curaleaf is a leading U.S. multi-state cannabis operator with a broad footprint across cultivation, processing and retail operations. The addition reflects the sub-advisor’s positive view on the cannabis sector and its evolving regulatory and demand backdrop.

Hydro One Inc. (4.25%, 2035/01/04) was increased because of the company’s resilient fundamentals and favourable yield profile given its predictable, long-term contracted cash flows.

Toronto-Dominion Bank (7.283%, 2082/10/31) Limited Recourse Capital Note was sold because of its long-dated structure and extension risk. While Toronto-Dominion Bank maintains strong credit fundamentals, the decision reflects a broader strategy to reduce exposure to deeply subordinated bank capital instruments in favour of bonds with better risk-adjusted return profiles.

Cleveland-Cliffs Inc. (7.00%, 2032/03/15) was reduced. Cleveland-Cliffs is a vertically integrated mining and steel producer and the largest flat-rolled steel manufacturer in North America. The pace of balance sheet deleveraging has been slower than expected, prompting a more cautious near-term view.